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					         Communicating the
          BUSINESS CA$E
          for Sustainability
                         Toronto Sustainability
                            Speaker Series
                                    Toronto
                                 April 22, 2008




Bob Willard   bobwillard@sympatico.ca    www.sustainabilityadvantage.com
      Definitions of Sustainability
         Sustainable Development (SD)
      Meeting the needs of the present generation
  without compromising the ability of future generations
                to meet their own needs
                 -- Brundtland Commission, 1987 –


                      Sustainability
The possibility that human and other forms of life on earth
                     will flourish forever
              -- John Ehrenfeld, Professor Emeritus. MIT –


         Sustainable Development (SD)
                  Enough - for all - forever
           -- African Delegate to Johannesburg (Rio+10) --
       Sustainability 3-Legged Stool
                 Sustainability
                                  Environmental Leg
                                  0 Pollution & Waste
                                  Renewable Energy
Economic Leg                         Conservation
 Good Jobs                            Restoration
 Fair wages
   Security                           Social Leg
Infrastructure                     Working conditions
  Fair Trade                        Health services
                                   Education services
                                  Community & Culture
                                     Social justice
Quality of Life / Genuine Wealth / Genuine Progress
Corporate Sustainability 3-Legged Stool
 Sustainability – Sustainable Development (SD)
   Environmental, Social, Governance (ESG)
     Corporate Social Responsibility (CSR)
     Corporate Responsibility (CR) – Green
     Triple Bottom Line (TBL) – 3Es – 3Ps
                               Environment - Planet
                                 Eco-efficiencies
 Economy - Profits
                                Eco-effectiveness
  Growth, Jobs,
      Taxes
                                 Equity - People
    Products
                                  Employees
     Services
                               Community / Culture
                                     World
Smart Business 3-Legged Stool


             Asset Management

                                       Natural
Financial                              Capital
 Capital
                                       Human
 Built                                 Capital
Capital
                                       Social
                                       Capital

          Sustainable Value Creation
         Municipal “3-Legged Stool”

                  Responsible Growth

                                            Enhanced
                                          Environment
     Vibrant                            Air, Land, Water,
   Economy                             Energy, Green space
Jobs, Tax base,
 Attracting good                        Safe Community
   businesses
                                        Quality Services
 Infrastructure                          Health Care,
   for Growth                          Education, Housing
                                        Cultural Diversity
       5-Stage Sustainability Journey

                          5. Purpose/Passion
                            Values-driven founder / CEO
4. Integrated Strategy
Enhanced business value
                                  3. Beyond Compliance
                                     Eco-efficiencies /
                                     PR crisis /
                                     Regulatory threat
2. Compliance
 Regulatory enforcement
                                 1. Pre-Compliance
Company Value “Iceberg”

        Balance Sheet




    Market Capitalization
Company Value “Iceberg”
         Balance Sheet



           Tangibles
           Financials



   Intangibles - Nonfinancials
    Reputation - Brand Image
    Stakeholder Relationships

    Market Capitalization
Company Value “Iceberg”: 1981
                         Balance Sheet




                          Tangibles
                          Financials
                                                                       83%


      Intangibles / Nonfinancials / Reputation                         17%
                  Market Capitalization
Arthur D. Little, The Business Case for Corporate Citizenship , 2002
Company Value “Iceberg”: 1998



                           Tangibles                                   29%
                           Financials



                         Intangibles
                        Nonfinancials
                         Reputation                                    71%




Arthur D. Little, The Business Case for Corporate Citizenship , 2002
    Sea of Demanding Stakeholders



                         Financials


     NGOs                                     Economists
                           Employees
                Media                         Global Markets
The Public
                 Nonfinancials / Reputation          Investors
             Customers        Banks       Insurers

Competitors                Governments                Scientists
             Two-Part Business Case



                         Financials


     NGOs                                     Economists
                           Employees
                Media                         Global Markets
The Public
                 Nonfinancials / Reputation          Investors
             Customers        Banks       Insurers

Competitors                Governments                Scientists
The Perfect Storm
 Oct. 27 – Nov. 1, 1991




        Fed on each other’s energies




                           v
           Mega-Issue Storm Clouds
Pollution & Health                               Wealth Chasm

   Pandemics                                      Water Crisis

 Erosion of Trust                                 Food Crisis


      NGOs                                        Economists
                              Employees
                Media                             Global Markets
The Public
                    Nonfinancials / Reputation          Investors
             Customers           Banks       Insurers

Competitors                   Governments                Scientists
The Debate is Over …
               7 Climate Change Risks
Regulatory “price on carbon:” Carbon caps or taxes

Litigation: Lawsuits for GHG pollution
Supply Chain: Suppliers passing on carbon costs and risks
Physical: Damage to assets from severe weather – yours,
suppliers‟, or customers‟
Competition: Rivals develop climate-friendly products and
technologies first

Reputation / Revenue: Backlash from consumers, markets,
and important stakeholders if do not react
Access to Capital / Threat to Market Value: Viewed as
“risky” by investors and banks


HBR, “Competitive Advantage on a Warming Planet,” by Lash and Wellington, Mar 07
Risk of Losing Awakened Consumers
     The “Goracle factor” + Hurricane Katrina
    + Weird weather globally + Rising energy prices + …

                                    70-80% of consumers say are
                                    switching to “green” companies
                                       20% actually did in 2006
                                   (Sustainable brand study by egg, March 07)

                                             LOHAS sector
                                              $209B in 2007
                                             $420B by 2010
                                             $845B by 2015




 Cover collage from Deloitte & Touch “Tax Wednesday” seminar, March 26, 2008
Attracting & Retaining Employees
   40% of MBA grads rated CSR as a an “extremely” or
     “very” important company reputation measure when
                job hunting (Hill & Knowlton Jan 08)
   79% of Americans say it is very important to work for
    employer with similar values (Fleishman-Hilliard 2006 survey)
    83% of employees in G7 countries say company‟s
       positive CSR reputation increases their loyalty
                          (GlobeScan 2006)

 83% of employees in G7 countries say company‟s
   positive CSR reputation increases their motivation
    (GlobeScan 2006)
         Warnings from Economists
              Stern Review Report (Oct 2006)
      Former World Bank chief economist, Nicholas Stern
               Quantified warnings in the 1997
          Economists’ Statement on Climate Change
1. Cost of climate change mitigation:
   1% of annual global GDP by 2050
   if we act now; 5-20% if we act later
2. Benefits of $2.5T if we act now;
   global depression if we do nothing
3. Must stabilize GHGs:
   Use carbon taxes and / or
   a cap-and-trade system;
   deploy low-carbon technologies;
   remove barriers to energy efficiency
                   Carbon Intensity
              Regulates carbon / product,
              not absolute cap / company
                       Sydney Declaration
             Non-binding "aspirational targets" to reduce
              APEC‟s 2005 level of "energy intensity"
                      by 25% by 2030 (Sept 07)
                            U.S. Goal
             Voluntary 18% intensity reduction by 2012,
                but absolute rise of 12% forecasted
Carbon Intensity       Product Volume Absolute Emissions
3T of CO2 / Product    1,000 Products    3,000T of CO2
                   Carbon Intensity
              Regulates carbon / product,
              not absolute cap / company
                       Sydney Declaration
             Non-binding "aspirational targets" to reduce
              APEC‟s 2005 level of "energy intensity"
                      by 25% by 2030 (Sept 07)
                            U.S. Goal
             Voluntary 18% intensity reduction by 2012,
                but absolute rise of 12% forecasted
Carbon Intensity       Product Volume Absolute Emissions
3T of CO2 / Product    1,000 Products    3,000T of CO2
2T of CO2 / Product    2,000 Products    4,000T of CO2
              Cap-and-Trade
Today‟s Emissions

Emissions Cap




                    Company A   Company B
                Cap-and-Trade
Today‟s Emissions

Emissions Cap
                      Credit
New Emissions




                    Company A   Company B
                Cap-and-Trade
Today‟s Emissions
                                Trade
Emissions Cap
                      Credit
New Emissions




                    Company A           Company B

    e.g. European Union Emissions Trading System (ETS)
     Capped 11,500 EU firms producing half of emissions
    40 euros/T penalty if exceed cap, rising to 100 euros/T
        Sustainable Building is “Hot”
• Marshall: Geothermal option for
  Copperfield homes in Oshawa
• Rodeo: 34-house EcoLogic LEED-
  Platinum enclave in Newmarket
• Monarch: 196-unit Evergreen LEED-H
  brownfield project in Scarborough




     94% of Americans prefer to work in „green‟ buildings
                  (Mortgage Lenders Network, 2006)
Risk of Becoming a “Risky Investment”
            Carbon Disclosure Project
                                           2003    2007
                 Institutional Investors      35    315
                 Value of Assets Held      $4.5T $41T
                 Companies Surveyed        FT500 2,400


Q. Revenue, regulatory, or physical risks to value
   from climate change?
A. Carbon-intensive manufacturers could lose 40% of
   their market value; Banks could lose 29% of value
Investor Network on Climate Risk (INCR)
        65 institutional investors, $4T in assets




    Asked SEC to require listed companies to disclose climate
      change risks in their financial performance (June 06);

   Climate Watch List of worst 10 GHG emitter companies
      got shareholder resolutions on climate change (Feb 07);

        Capital to Capitol report: Request that Congress
    cut GHGs 60-90% below 1990 levels by 2050 (Mar 07)
Threat to Access to European Market
         Pollution & health regulations
     Restriction on Hazardous Substances (RoHS)
Waste from Electrical and Electronic Equipment (WEEE)
          End of Life Vehicles Directive (ELVD)
Registration, Evaluation, Authorisation and Restriction of
                  Chemicals (REACH)
              Energy-using Products (EuP)

               Climate Change Plan
      Reduce CO2 20% below 1990 level by 2020

             Big retailers taking action
       Threat of Local Actions
       U.S. Mayors‟ Climate Protection Agreement
      Kyoto at city level for 800+ U.S. cities (as of Mar 08)
        7% below 1990 GHG levels by 2008-2012
     Western Regional Climate Action Initiative (Feb 07)
           5 west-coast U.S. States + BC & MB
       Cap-and-trade system; -15% GHGs by 2020
    Regional Greenhouse Gas Initiative (RGGI) (Sept 03)
                10 East-coast U.S. States
                 Cap-and-trade system
   Midwestern Greenhouse Gas Reduction Accord (Nov 07)
       6 Midwest States + MB: -80% GHGs by 2050
     US Climate Action Partnership (USCAP)
    31 corps and NGOs; want cap-and-trade,
15% GHG cut in 15 years; 60-80% GHG cut by 2050
Unusual Threats Driving Sustainability
        National Security  Alternative energy
 $2B by 2011 from U.S. Gov for international clean energy
      technology fund to help fight climate change.

       War for Talent  Sustainability reputation
70% of NA grads seek companies with good CSR reputations

        Revenue Pressure  Carbon trading
      $60B global market in 2007, up 80% from 2006

      Sarbanes Oxley  Sustainability reporting
   Global Reporting Initiative guidance on reporting risks
       64% of Global 250 do sustainability reports
             Two-Part Business Case



                         Financials


     NGOs                                     Economists
                           Employees
                Media                         Global Markets
The Public
                 Nonfinancials / Reputation          Investors
             Customers        Banks       Insurers

Competitors                Governments                Scientists
One More Goal … or an Enabling Strategy?
                      Profit   Innovation
            Share price          Speed to market
             Growth                New markets
          Revenue                    Talent wars
   Customer care                        Productivity
Expense savings                             Motivation
     Competition                       Brand image
      Market share                   Managing risks
         Leadership                Compliance
           Governance           Supply security
    Typical SME Company Benefits
Revenue                  $4,000,000
Profit                    $200,000 (5% of Revenue)
Workforce:                       50 (43 + 7 Managers)
Avg. Employee Salary        $25,000
Avg. Manager Salary         $55,000

             Potential profit increase: +66%
   + Energized employees + Improved corporate image
   + Competitive advantage + Positioned for the future
Lead It Like Any Culture Change
          1. Walk the talk as senior leaders
     Integrate into vision - mission – strategies
          Business strategy vs. philanthropy
             Avoid “green-washing” hype
   Visible support – speeches, questions, actions

          2. Educate the whole company
           Solicit employee ideas - help

  3. Align with measurement & reward systems
       6 Benefit Areas
      1. Reduced recruiting costs
       2. Reduced attrition costs
 3. Increased employee productivity

4. Eco-efficiencies: savings in energy,
    water, materials, waste handling

 5. Increased revenue / market share
6. Lower insurance & borrowing costs

… yielding a profit increase of +66%


             REPUTATION
Potential Improvements
     1. Reduced recruiting costs          -1%
      2. Reduced attrition costs          -2%
 3. Increased employee productivity       +6%

4. Eco-efficiencies: savings in energy,   -10%
    water, materials, waste handling

5. Increased revenue / market share       +5%
6. Lower insurance & borrowing costs      -5%


… yielding a profit increase of +66%

      REPUTATION
          What if … ?
     1. Reduced recruiting costs          -1%
      2. Reduced attrition costs          -2%
 3. Increased employee productivity       +6%

4. Eco-efficiencies: savings in energy,   -10% -5%
    water, materials, waste handling

5. Increased revenue / market share       +5%
6. Lower insurance & borrowing costs      -5%

… yielding a profit increase of +66%
                                +56%
      REPUTATION
          What if … ?
     1. Reduced recruiting costs          -1%
      2. Reduced attrition costs          -2%
 3. Increased employee productivity       +6%

4. Eco-efficiencies: savings in energy,   -10%
    water, materials, waste handling

5. Increased revenue / market share       +5% +2.5%
6. Lower insurance & borrowing costs      -5%


… yielding a profit increase of +66%
                                +64%
      REPUTATION
          What if … ?
     1. Reduced recruiting costs          -1%
      2. Reduced attrition costs          -2%
 3. Increased employee productivity       +6% +3%

4. Eco-efficiencies: savings in energy,   -10%
    water, materials, waste handling

5. Increased revenue / market share       +5%
6. Lower insurance & borrowing costs      -5%


… yielding a profit increase of +66%
                                +48%
      REPUTATION
          What if … ?
     1. Reduced recruiting costs          -1%
      2. Reduced attrition costs          -2%
 3. Increased employee productivity       +6% +3%

4. Eco-efficiencies: savings in energy,   -10% -5%
    water, materials, waste handling

5. Increased revenue / market share       +5% +2.5%
6. Lower insurance & borrowing costs      -5%

… yielding a profit increase of +66%
                                +35%
      REPUTATION
             Two-Part Business Case



                         Financials


     NGOs                                     Economists
                           Employees
                Media                         Global Markets
The Public
                 Nonfinancials / Reputation          Investors
             Customers        Banks       Insurers

Competitors                Governments                Scientists
              The “Tipping Point”?
                          5. Purpose/Passion
                    20%   Values-driven founder / CEO
4. Integrated Strategy
Enhanced business value
                                  3. Beyond Compliance
                                  Eco-efficiencies/
                                  PR crisis/
                                  Regulatory threat
        2. Compliance
 Regulatory enforcement
                                  1. Pre-Compliance
             In Summary …
       Sustainability is smart business
          Business language applies
Important stakeholders‟ expectations are rising
    New market forces & risks are in play
    Relevant to existing business priorities
   Can protect & enhance company value
        Many willing, helpful partners
          Opportunity for leadership
         Communicating the
          BUSINESS CA$E
          for Sustainability
                         Toronto Sustainability
                            Speaker Series
                                    Toronto
                                 April 22, 2008




Bob Willard   bobwillard@sympatico.ca    www.sustainabilityadvantage.com

				
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